dalila cervantes-godoy trade and agriculture directorate · smallholder adjustment: issues and...

SMALLHOLDER ADJUSTMENT: ISSUES AND POLICY RESPONSES

Global Forum on Agriculture, 20-21 November 2008

Dalila Cervantes-GodoyTrade and Agriculture Directorate

OECD Trade & Agriculture Directorate 2

Outline

• Introduction

• Historical context

• Policy responses

• Strategic framework for smallholder development

• Conclusions


Introduction

• Agriculture faces adjustment pressures as part of the general process of economic development

• Some pressures are country specific, but many are universal in nature…


• Agriculture’s share of GDP has a long-term tendency to decline

Adjustment pressures in agriculture


India

Indonesia

China

Brazil

South AfricaUruguay

Turkey

Argentina

Mexico

Rusia

Chile

Poland

Korea

Israel

New Zealand

Spain

ItalyJapan

Germany

Finland

France

UK

Australia

Belgium

Austria

Netherlands

CanadaUSA

India

Indonesia

China

Brazil

South Africa

Uruguay

Turkey

Argentina

Mexico

Rusia

Chile Poland Korea Israel

New Zealand

Spain Italy

JapanGermany

Finland

France UK

AustraliaBelgium

Austria

Netherlands

Canada USA0

10

20

30

40

50

60

70

80

% AGR GDP/GDP (%) 1961 AGR GDP/GDP (%) 2005

GDP per capita PPP Current USD, 2005USD 2 000 USD 42 000

Evolution of agriculture’s share of GDP various

countries, 1961 & 2005


• Agriculture’s share of employment also tends to decline over time



India Indonesia

China

Brazil

South Africa

Uruguay

Turkey

Argentina

Mexico

Rusia

Chile

Poland

Korea

Israel New Zealand

Spain

ItalyJapan

Germany

Finland

France

UK

Australia

Belgium

Austria

Netherlands

Canada

USA

India

Indonesia

China

Brazil

South Africa

Uruguay

Turkey

Argentina

Mexico

Rusia

Chile

Poland

KoreaIsrael

New Zealand

Spain

Italy Japan

Germany

Finland

France UK

Australia

Belgium

Austria

Netherlands

Canada

USA0

10

20

30

40

50

60

70

80

%

AGR EMPL (%) 1961 AGR EMPL (%) 2005

USD 2 000 USD 42 000

GDP per capita PPP Current USD, 2005

Evolution of agriculture’s share of employment various

countries, 1961 & 2005


• Difference between agriculture’s share of GDP and its share of employment tends to diminish



18

13 13

6

3

9 11 9

46 4 5

3

3

9

3 2 2 1 3 2 1 3 1 2 2 2 1

40

31 31

15

74

19

8

11

4912

5

12 2 2 2 1

2 20 1 1

4 1 1 1

58

44 44

21

10

5

30

1

15

10

13

17

8

27

54 4 2

54

14 2

63 3 2

0

10

20

30

40

50

60

70

Indi

a

Indo

nesi

a

Chin

a

Braz

il

Sout

h A

fric

a

Uru

guay

Turk

ey

Arg

entin

a

Mex

ico

Rusi

a

Chile

Pola

nd

Kore

a

Isra

el

New

Zea

land

Spai

n

Italy

Japa

n

Ger

man

y

Finl

and

Fran

ce UK

Aus

tral

ia

Belg

ium

Aus

tria

Net

herl

ands

Cana

da

USA

% AGR GDP/GDP (%) 2005 Difference AGR EMPL (%) 2005AGR GDP (%) 2005

GDP per capita PPP Current USD, 2005

USD 2 000 USD 42 000

Difference between agriculture’s share of GDP and

employment, various countries 2005


• The pace of adjustment is speeding up!



Agriculture share of GDP Agriculture share of employment

Year of 40% Year of 7% Years required Year of 40% Year of 16% Years required

Netherlands 1800 1965 165 1855 1957 102

Denmark 1850 1969 119 1920 1962 42

UK 1788 1901 113 1800 1868 68

Chile 1875 1980 105 1950 1993 43

Mexico 1890 1992 102 1969 2000 31

USA 1854 1950 96 1897 1950 53

France 1878 1972 94 1921 1965 44

Brazil 1910 2003 93 1960 2005 (20.5%) >45

Germany 1866 1958 92 1900 1942 42

Japan 1896 1969 73 1940 1971 31

Poland 1935 1991 56 1968 2006 (18.7%) >31

India 1962 2006 (17.5%) >44 2005 (58%) --

China 1967 2006 (11.7%) >39 2006 (43%) --

Turkey 1970 2007 (8.9%) >37 1998 2007 (28.7%) >9

Korea 1965 1991 26 1977 1991 14

Indonesia 1971 1997 26 2006 (42%) --

Pace of adjustment in various countries, based on

agriculture’s share of GDP and employment


• Who faces adjustment pressure as a result of these changes?


• Farmers that do not participate in the productivity gains and therefore cannot compete with efficient domestic agricultural businesses or imports.

• Often these farmers are smallholders.


• If smallholders' incomes are comparable with incomes in other sectors, and smallholders can adjust easily, then there would be no need for a policy response.

• But smallholders in middle income countries often have relatively low incomes which are put under further pressure by productivity improvements in which they do not participate.


How have governments responded?


• Support in OECD countries has in many cases sought to put a brake on the process of adjustment rather than facilitate it.

• Support has typically been provided to all farmers, not just smallholders

• Large share of support is still provided through market price support, which is linked to production and concentrates benefits among large producers rather than smallholders.

In the case of high income OECD countries:


In the case of emerging economies:

• As income rise and agriculture’s share of employment decreases, countries can afford to support agriculture.

• Emerging economies have followed a similar path to high income OECD countries:

– Tendency to start subsidising farmers rather than taxing them

– Provision of support mostly through market price support


-10

0

10

20

30

40

50

60

70

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p

%

Brazil Chile China Russia South Africa Ukraine Mexico Korea Turkey OECD Average

Evolution of the PSE’s in OECD and selected countries,

1997-2007


-30

-20

-10

0

10

20

30

40

50

60

1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04

perc

ent

HIC & ECA* Developing countries

Nominal Rate of Assistance to agriculture in developed

and developing countries, 1955-2004


USA

W-EU

CAN

Japan

AUS NZL

Korea

MEX, 2000-04

Turkey

ChileBrazil China

SA India , 2001-04Indonesia , 2001-04USA

W-EU

CAN

Japan

AUSNZL

Korea

Mexico, 1980-84

Turkey

Chile

Brazil, 1966

China

South Africa India, 1965-68

Indonesia, 1970-73

-60

-45

-30

-15

0

15

30

45

60

75

90

105

120

135

150

165

0 10 20 30 40 50 60 70 80 90

NR

As

(%

)

Agriculture's share of employment,

2005 1961

Level of support and agriculture’s share of

employment, 1961 & 2005, selected countries


What policies are needed for smallholders?


• If policy objective is to keep smallholders in farming, it needs to be stated explicitly.

– Not possible to have coherent policies that seek to improve productivity yet protect smallholders from competitive/adjustment pressures .

• If policy objective is to encourage a productive and competitive agricultural sector then

– There is a need to embrace structural adjustment and identify policies that can facilitate that process.


• A strategic framework for smallholder development.


Policy instrument

Within agriculture Outside agriculture

Investment in human

capital

Minor effects of formal education

for this generation; technical

training more appropriate for

productivity.

Can help farm family

members and rural workers

move into skilled jobs

Important for farm family


Important for managing

inter-generation change

Investment in

infrastructureHelps with market integration

Can ease migration

decisions for offspring

R&D and extension

Public and private sector

important; gains from adoption and

adaptive research.

Can expand agricultural

employment

CreditShould focus on correcting market

failuresIndirect impacts

Labour market

reforms

Cash transfers

(possibly conditional)

Conditional school

attendance may

complement investments

in schools

The most important policy for

those unable to adjust. Some

examples: Chile-solidario,

Oportunidades-Mexico, Bolsa

Familia-Brazil

Regional policiesImportant for improving market

integration

Expanded non-farm activity

would raise farm wages

Develop producer

associations

Reduce transaction costs and help

exploit economies of scale.Indirect impacts

Land policies and

property rights

Need to encourage rental markets

and facilitate land purchases by

small farmers

Important for raising employment opportunities and wage incomes

Important for building a diversified rural economy with

wider job opportunities

Development pathway

Help farmers become more

competitive within agriculture

Diversify income sources Leave the sector for off

farm work

Safety nets for those unable

to adjust

Helps improve local job opportunities

Framework


Policy instrument


Investment in human

capital




productivity.








Investment in


Can ease migration


R&D and extension



adaptive research.


employment



Labour market

reforms

Cash transfers


Conditional school

attendance may


in schools





Familia-Brazil


integration



Develop producer

associations



Land policies and

property rights



small farmers




Development pathway




farm work


to adjust


Framework


Conclusions

• Smallholder adjustment is part of the general process of economic development and should be welcomed.

• For the majority of smallholders in middle income countries, the long term (i.e. inter-generational) future lies outside the sector.


• Government cannot judge which individual farmers are potentially competitive, but a degree of targeting is necessary.

• No easy solutions, but case study experiences may offer some practical insights.

Conclusions


Thank You

Trade and Agriculture Directorate

www.oecd.org/agriculture

[email protected]

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dalila cervantes-godoy trade and agriculture directorate · smallholder adjustment: issues and...

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